Eurozone retail sales slump in October

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Last Updated: Wed, Dec 05, 2012 13:15 hrs

Retail sales across the 17 European Union countries that use the euro slumped far more than anticipated in October, largely due to a huge drop in Germany, in a development that will put more pressure on the European Central Bank to cut borrowing rates soon.

Eurostat, the EU's statistics office, said Wednesday that eurozone retail sales fell 1.2 percent in October from the previous month, double September's decline and substantially more than the 0.2 percent drop expected in the markets

The figures provide further evidence that households across the eurozone remain gloomy over the economy and are reluctant to spend more than they have to — non-food sales were particularly weak during October. The eurozone is back in recession, officially defined as two straight quarters of falling output, and unemployment is up at a record high of 11.7 percent with 18.7 million people out of work.

"The prospects for consumer spending in the eurozone look troubling in the near term at least given very low consumer confidence, high and rising unemployment, generally muted wage growth and tightening fiscal policy in many countries," said Howard Archer, chief European economist at IHS Global Insight.

While five of the countries at the epicenter of Europe's debt crisis — Greece, Cyprus, Spain, Portugal and Italy — are in recession, other economies, such as powerhouse Germany, are also now seeing demand wane. German retail sales fell a staggering monthly 2.8 percent, according to Eurostat.

Wednesday's figures come a day before the ECB meets to decide on whether to cut its main interest rate from the record low of 0.75 percent. Most economists think the ECB will wait before backing another cut, though the dire economic indicators recently have created some uncertainty over its decision. The euro fell on the latest figures, trading 0.2 percent lower on the day at $1.3075.

"The ECB is highly unlikely to cut interest rates at its meeting tomorrow," said Marie Diron, senior economic adviser at Ernst & Young. "It has explained before that it thinks such a cut would have no impact on the economy as the transmission mechanism remains impaired."

As well as announcing its latest interest rate decision, the ECB is also due to unveil its latest quarterly economic projections. They're not expected to show a recovery in the eurozone economy before the second half of next year at the earliest as many governments continue to enact spending cuts and tax increases to lower debt.

A separate survey reinforced market expectations that the recession in the eurozone has continued into the fourth quarter. Though the monthly purchasing managers' index — a broad gauge of business activity — from financial information company Markit was revised up to 46.5 in November from the previous estimate of 45.8, the survey still points to recession — any reading below 50 points to a contraction in activity.